Herring announces $9.29 million in debt relief for 1,000 former ITT Tech students in Virginia
Attorney General Mark R. Herring announced that he has secured $9.29 million in debt relief for nearly 1,000 former ITT Tech students in Virginia as part of a 43 state multistate settlement. The settlement is with Student CU Connect CUSO, LLC (“CUSO”), which offered loans to finance students’ tuition at ITT Tech, the failed for-profit college. ITT filed bankruptcy in 2016 amid investigations by State Attorneys General and following action by the U.S. Department of Education to restrict ITT’s access to federal student aid.
Nationally, the settlement will result in debt relief of more than $168 million for nearly 19,000 former ITT students. The CUSO Loan program originated approximately $189 million in student loans to ITT students between 2009 and 2011.
A related settlement between the CUSO and the U.S. Bankruptcy Trustee was approved on June 14th. The Attorney Generals’ settlement is also contingent on federal court approval of a related settlement between the CUSO and the federal Consumer Financial Protection Bureau which is also being announced.
“As Attorney General I am committed to protecting Virginia students and their families from exploitation and abuses when they try to finance their education,” said Attorney General Herring. “Student loan debt has become a significant burden on so many families, and the problem is only made worse when unscrupulous schools and shady lenders try to pressure, abuse, and take advantage of student borrowers. I hope this debt relief will alleviate some of the financial pressure on Virginia students who were hurt by this scheme.”
The Attorneys General alleged that ITT, with CUSO’s knowledge, offered students “temporary credit” upon enrollment to cover the gap between federal student aid and the full cost of the education. The temporary credit was due to be repaid before the student’s next academic year, although ITT and CUSO knew or should have known that most students would not be able to repay. Many students complained that they thought the temporary credit would not be due until six months after graduation, as with federal student loans.
When students’ temporary credit repayment came due, ITT pressured and coerced students into accepting high-interest loans from CUSO. Pressure tactics used by ITT included pulling students out of class and threatening to expel them if they did not accept the loan terms. Because students were left with the choice of taking the loan or dropping out and losing the credits they had earned, most students enrolled in the CUSO loans. Neither ITT nor CUSO made students aware of the true cost of repayment for the temporary credit until after the credit was converted to a loan. Not surprisingly, the default rate on the CUSO loans was extremely high (projected to exceed 90%) due to both the high cost of the loans as well as the lack of success ITT graduates had getting jobs that earned enough to make repayment feasible. The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.
Under the settlement, the CUSO, under threat of litigation, has agreed that it will forego collection of the outstanding loans. The CUSO, which was organized for the sole purpose of providing the ITT loans, will also cease doing business. Under the Redress Plan, CUSO’s loan servicer will send notices to borrowers about the cancelled debt and ensure that automatic payments are cancelled. The settlement also requires the CUSO to supply Credit Reporting Agencies with information to update credit information for affected borrowers.
Students with questions about their rights under the settlement will receive information in the Notices that are sent. Students may also contact Attorney General Herring’s Consumer Protection Section:
In addition to this settlement, Attorney General Herring obtained $8 million in debt relief for 3,000 former students of Career Education Corp. in a January 2019 settlement.
Overall, Attorney General Herring’s Consumer Protection Section has recovered more than $300 million in relief for consumers and payments from violators. The Section has transferred more than $33 million to the Commonwealth’s General Fund, and following a major reorganization and enhancement in 2016 the Section has been even more effective in fighting for Virginia consumers.